This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

China GDP at 7.5%? Not Likely

NEW YORK ( TheStreet) -- Stock markets around the world are seeing gains early in the week, propelled, in large part, by relatively strong GDP figures out of China. For the second quarter, Chinese growth was reported at 7.5%, stoking bullish optimism in the market and softening concerns of deceleration in world's second-largest economy.

The S&P 500 is once again pressuring its all-time highs and the Shanghai Composite Index (SHCOMP) is trading near its best levels for the month. This is the second straight quarter of slowing expansion, but the in-line print was still interpreted as a positive, given recent comments from China's leadership suggesting a willingness to accept weaker growth prospects.

But how accurate is the report? Are there reasons to believe that the data are inflated? The numbers indicate that declining trade activity and official measures to contain bank lending have taken effect, and that the country is now on a trajectory to post growth rates of below 8% for the foreseeable future.

Recent comments out of Beijing prepared markets for a negative outcome, as signs of distress are building. The government's target growth rate for 2013 is now 7.5%, which, if realized, would be the lowest expansionary rate in more than 20 years.

For potential investors, declining headline growth should be taken alongside the recent turmoil that has been seen in Chinese stock markets, which show strong bearish moves in a year of global recovery. Together, this suggests that risk in both the real goods and financial sectors is one the rise, and that investors with exposure to companies in the country should consider reducing that exposure.

Reasons for Skepticism

This week's report does not reflect the severity of China's drop-off in growth, and there is a strong possibility that these latest GDP numbers are skewed in a way that distorts the real economic picture in China. This should light warning flares for those basing their investment decisions on the validity of the country's official data. Along with the contractions in aggregate financing and exports seen in May and June, losses in manufacturing productivity were present throughout the entire second quarter. This creates a scenario where sub-5% GDP growth rates are far more likely.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.24 -0.41%
FB $117.81 -0.21%
GOOG $701.43 0.82%
TSLA $211.53 -4.96%
YHOO $36.94 2.61%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs